The Department Store Industry Presents A Downturn. Modern Department Stores Have A Long Way To Go

On April 15, 2014, Guangzhou Modern Department Store Co., Ltd. (hereinafter referred to as "Modern Department Store"), the largest private department store in Guangzhou, was listed on the "New Third Board".

Modern Department Store, which has long relied on its own capital accumulation and development and is located in a corner of Guangzhou, is still relatively small, and its store expansion pace still lags behind that of listed companies in the same industry. Therefore, it has always hoped to achieve cross regional development with the help of listing springboard. After the completion of shareholding reform at the end of 2007, it once entered the guidance period for listing, but failed to do so for various reasons.

The IPO was blocked, and Modern Department Store, which was in urgent need of funds, switched to the "New Third Board", which on the one hand met the financing needs, on the other hand, laid the foundation for future capital operation. Modern Department Store said that after obtaining new financing, it will move towards "physical stores+e-commerce+mobile technology" in the future.

However, insiders pointed out that even if it successfully landed on the "New Third Board", Modern Department Store still has a lot of problems to solve: in recent years, its operating profit has declined year by year, and last year saw a significant loss; In the case of unsatisfactory expansion of new stores, it is difficult for net profit to change from loss to profit in the short term; During the cultivation period of new stores, the risk of relatively concentrated business performance is difficult to solve in the short term; The property right of Gangding Head Office, which accounts for half of the revenue, is not clear, which may bring huge unstable factors; It is not easy to try new models and transform business types to cope with the downturn in the industry and the impact of e-commerce.

If these "mines" cannot be cleared one by one in time, Modern Department Store can hardly laugh.

　　 Moving to "New Third Board" curve financing

The Public Transfer Instruction of Guangzhou Modern Department Store Co., Ltd. (hereinafter referred to as the "Instruction") shows that the registered capital of Modern Department Store is 45 million yuan, 45 million shares are planned to be allotted, and the par value of each original share is 1 yuan.

From the information disclosed by Modern Department Store, its new store cultivation, expansion of physical network and e-commerce development all need a lot of financial support. Previously, the company's development speed was limited due to the influence of funds. Successful landing on the "New Third Board" can meet the financing needs of Modern Department Store.

In fact, Modern Department Store has been thinking about listing for a long time. On December 13, 2007, Modern Department Store was changed into a joint-stock company as a whole. After the completion of the joint-stock reform, Modern Department Store has been on the "road" of listing. Last year, it encountered a suspension of IPO. In addition, it was affected by the overall environment. After it opened two new stores, its performance was under pressure, so it had to abandon the main board listing plan and seek listing on the new third board.

The successful landing on the NEEQ means that Modern Department Store can use targeted equity issuance, corporate bond issuance, equity pledge loans and other means to finance. Huang Wenjie, executive chairman of Guangdong Circulation Industry Chamber of Commerce, said that many retailers and large e-commerce companies that had not entered the Guangzhou market had contacted Modern Department Store earlier, hoping to buy shares of Modern Department Store.

In Huang Wenjie's opinion, foreign department stores have always been difficult to expand in Guangzhou, while Modern Department Store has eight stores in the Guangzhou market, and this unique network resource is still very advantageous. The listing on the NEEQ will make Modern Department Store more transparent and reassure investors.

Huang Wenjie said that if new shareholders enter and bring in some high-quality resources, it should be able to drive the performance of Modern Department Store, which is more conducive to the sustainable and growth financing of Modern.

According to insiders of Modern Department Store, the company's move to the NEEQ does not mean stopping the pace of listing, but hopes to use the NEEQ as a "springboard", and still looks forward to moving to the SME board in the future.

According to the data, Modern Department Store was opened in 2002, mainly engaged in the retail business of fashion and wearables. The company was founded by five natural persons, Zhou Qiang, Li Lianying, Zhang Shaowei, Zhang Zewen and Li Xiaofeng. The registered capital of the company is 45 million yuan. Among them, Zhou Qiang, chairman of Modern Department Store, holds about 24% of the shares.

In Zhou Qiang's view, strategy determines the business model, and the accurate positioning of "fashion and high price" is very important for Modern to occupy a place in the powerful Guangzhou department stores. The site selection strategy of "the sub core zone of the growth center business district" also allows him to accurately place the chess pieces of modern department stores on the "chessboard" of each appropriate business district.

At present, Modern Department Store should have 8 stores, all located in Guangzhou, with an actual business area of about 150000 square meters. According to its official website, there are 8 existing stores, namely Gangding Store, Haigou Store, Huangpu Store, Holy Land Store, Huadu Store, Xintang Store, Beijing Road Store and Xicheng Duhui Store.

Modern Department Store said that since its establishment, the company has been relying on its own capital accumulation and development, and the pace of store expansion still lags behind that of listed companies in the same industry. Moreover, the company's store network is mainly distributed in Guangzhou, with relatively small sales scale, and its influence in other regions of the country is not enough.

Industry insiders pointed out that large-scale channel construction may be the future expansion direction of Modern Department Store. The expansion needs a lot of capital support, and the demand for financing of Modern Department Store landing on the NEEQ is more obvious.

It is understood that the key areas for the next expansion of modern department stores are the lower districts of Guangzhou. At present, except Panyu and Nansha, other districts of Guangzhou have access to the physical channels of modern department stores. Panyu and Nansha are the next key areas to consider for the expansion of new stores.

　　 Net profit It is difficult to turn short-term losses into gains

Industry insiders pointed out that even if it successfully landed on the "New Third Board", Modern Department Store still has a lot of problems to solve.

From the perspective of marketing, the performance of Gangding Head Office of Modern Department Store has always been envied by the industry. It is reported that this store is the first store of Modern Department Store. From January to August in 2011, 2012 and 2013, the operating revenue of Gangding Head Office was 527492700 yuan, 539271700 yuan and 325198700 yuan respectively, accounting for 55.12%, 54.76% and 48.69% of the company's operating revenue. During the reporting period, the net profits of Gangding Head Office were RMB 40.0422 million, RMB 41.2768 million and RMB 36.0586 million respectively, which were the main source of the company's profits.

But this also means that Modern Department Store is quite dependent on Gangding Head Office. During the cultivation period of new stores, the risk of relatively concentrated business performance is difficult to solve in the short term.

In the Manual, Modern Department Store also said that since new stores in the department store industry usually need to be cultivated, the cultivation period varies depending on the business circle, customer flow, brand awareness, store operating area and fixed cost expenditure of each store. At present, there are 8 stores of Modern Department Store, and the loss amount of two new stores in the report period is large. With the improvement of the operating performance of new stores and the increase of stores that have passed the loss period, the problem of the high proportion of net profits contributed by the head office at the top of the post will be gradually improved. However, the risk of relatively concentrated operating performance of the company is difficult to solve in the short term due to the cultivation of new stores that usually requires a certain period of time and the possibility of loss exceeding expectations.

According to Modern Department Store, the solution to the problem of performance concentration depends on the improvement of other stores, especially new stores.

However, the performance of Modern Department Store in the past three years is not optimistic. The operating profit has declined year by year, and there was a significant loss last year. According to the Manual, the operating revenue of Modern Department Store from January to August of 2011, 2012 and 2013 was 956.9881 million yuan, 984.8114 million yuan and 66.9422 million yuan respectively, and the net profit was 40.103 million yuan, 22.6093 million yuan and -23.6886 million yuan respectively.

Modern Department Store attributed the continuous decline in net profit and operating capital to the drag of two new stores. The two new stores of Modern Department Store in July 2012 and December 2012, namely Beijing Road Store and Xicheng Duhui Store, are not very profitable at present. From January to August in 2012 and 2013, the total losses of these two new stores were -17.5864 million yuan and -46.7123 million yuan respectively, which dragged down the overall performance of the company.

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The report points out that the increase in rent, management fees, utilities and labor costs for new stores has led to a continuous decline in net profit. At the same time, new stores need time to cultivate in terms of customer flow, brand awareness, customer trust, etc., and the operating revenue is difficult to cover their main fixed costs in the short term.

Some insiders pointed out that as two new stores of Modern Department Store are still in the cultivation period, it is difficult for the net profit to change from loss to profit in the short term.

Modern Department Store also admitted that in the next few years, with the main costs such as rent and management fees, utilities, labor costs and expenses rising continuously, if the sales of new stores can not grow rapidly, the company's net profit is at risk of further decline. The company will also consider closing stores whose business performance grows slowly and whose losses exceed expectations.

It is worth noting that in 2011, 2012 and January August 2013, the net operating cash flow of Modern Department Store was 51.5429 million yuan, 40.7945 million yuan and -59.5415 million yuan respectively. The Instruction Manual shows that the company's operating cash flow was negative from January to August 2013, mainly due to the large net operating cash outflow of two new stores.

According to the Manual, the operating cash flow was negative from January to August 2013, mainly due to the large net operating cash outflow of the two new stores. If the operating cash inflow generated by the sales revenue of two new stores in the next few years cannot cover the payment for goods payable to suppliers and major fixed cost expenditures, the company's net operating cash flow may still be negative, which will adversely affect the company's ability to continue operations.

In addition, the property right of Gangding Head Office is not clear, which may bring huge unstable factors to the development of the company. It is reported that the rental room of the property of the Gangding Store of Modern Department Store is the logistics department of the Guangdong Provincial Armed Police Corps. Although the lease contract has been registered and filed with the competent department of the Guangzhou Municipal Government according to law, the logistics department of the Guangdong Provincial Armed Police Corps has not handled the property ownership certificate and land use right certificate of the property.

　　 Department Store The whole industry is depressed

A common problem faced by Modern Department Store is that the department store industry is still weak, and slowing sales growth and shrinking profits have become the general trend of the whole industry. Industry insiders predict that this year's price war in the department store industry may be upgraded, and the in-depth adjustment of the internal operation of the department store industry will continue. However, the continuous promotion of consumers has become numb, forcing them to treat the symptoms rather than the root causes. In the case of continued recession of consumption, it still takes some time for the industry to recover.

The disclosed 2013 annual report shows that Guangzhou Friendship achieved an operating revenue of 4.092 billion yuan, down 8.26% year on year; While Guangbai shares achieved growth, they also increased by 5.59%. According to the disclosure of Wanda Group, Wanda Department Store achieved 15.49 billion yuan in revenue last year, up 39% year on year, only 91% of the adjusted plan. In addition, the net profit of Wanda Department Store increased by 7%, and the loss continued to expand. This is also the first time in the history of Wanda Department Store that it failed to complete its profit plan, and it is also the only company of Wanda Group that failed to meet its targets.

According to the iFinD data of Flush, 14 of the 21 listed companies in the department store industry experienced negative revenue growth in the first quarter of this year, with Hangzhou Jiebai down 20.56% year on year; 13 companies had negative net profit growth, and Nanning Department Store had a year-on-year decline of 88.19%.

The analysis report of BOCI believes that the decline in revenue of department stores is due to the decline in overall business prosperity.

According to the New Express, many department stores have stopped expanding due to performance pressure. As far as Guangzhou is concerned, except Tianhe City Department Store, 8 department stores, including Guangbai Department Store, Guangzhou Friendship Department Store and Modern Department Store, have not expanded. The pace of expansion of the company has slowed down, and the sales of the same store has declined, leading to negative sales growth.

It is worth noting that the gross profit rate of sales of 9 department stores declined in the first quarter. At the same time, the rising cost of manpower and rent has become the "killer" of "strangling" net profits. The data shows that the sales expense rate of 14 department stores is rising. In addition, many department stores mentioned that the performance pressure comes from the decrease of operating income and the increase of promotion expenses.

Financial experts point out that the amount of advance receipts actually indicates the future income and profits of enterprises. The biggest manifestation of advance receipts from department stores is shopping cards. Due to the influence of "frugality", the issuance of shopping cards has decreased, and the decline in advance receipts has also led to a serious decline in the performance of listed department stores, which puts significant pressure on the industry. According to the iFinD data of Tonghua Shun, 16 of the 21 listed department stores had a year-on-year decline in advance receipts, such as the advance receipts of Wangfujing, which declined by 20.61%.

　　 It's hard to say success when trying to reach the net

In response to online retailers As a result, Modern Department Store officially launched its online shopping mall "Modern Web" on Christmas Day 2013, mainly engaged in brand discount goods, and opened an offline experience store in the outlets on Beijing Road of Modern Department Store. "Supplement to offline main business" is the positioning of Moden 100 online stores. This is similar to Guangbai and Friendship, which set up online stores first.

It is reported that in the future, Modern Department Store will change to the direction of "physical store+e-commerce+mobile technology". At present, Modern Department Store is involved in mobile Internet technology and developing mobile payment.

In fact, not only the modern department stores, but also the local department stores that only looked at e-commerce from afar a few years ago have also made changes, or tried new models or conducted business transformation.

However, experts said that on the road of Internet commerce, from O2O to omni channel, the industry needs to change the traditional links, transform them into new models, and cultivate users' habits. This road is not easy. It seems that there is no complete and successful model of how to continuously "suck powder" to achieve the integration of online and offline resources. It is still difficult for customers to convert their online clicks into actual turnover.

In addition, some insiders pointed out that the marketing modes of online sales and traditional stores are very different, and it is difficult to complement each other. As a result, the online and offline models will increase costs, and there is still a lack of good profit models. In the view of traditional business, O2O still tends to be conceptual, and no one dares to invest too much in it, which is still in the trial stage.

　　 Mixed operation for warmth

According to the reporter, in Guangzhou, Modern Department Store has to face many competitors. At present, there are seven major department stores in Guangzhou, and foreign department stores and Wangfujing and other major companies in Guangzhou. By the end of 2012, there were 39 department stores in Guangzhou.

When modern department store Gangding head office opened, there was no supermarket, no household appliances, and the business model of Guangzhou traditional department store was not followed step by step. However, in the face of competition, Modern Department Store, which has been "abandoning" supermarkets and household appliances, has also begun to change its business strategy, teaming up with other traditional retailers to seek breakthroughs. On January 8, 2014, Modern Department Store and Guangzhou Gome held a "Launch Conference on Creating a New Retail Format - Gome Modern Department Store Strategic Cooperation", announcing that all the electrical appliance sales business segments of its stores were professionally operated by Guangzhou Gome.

The first phase of cooperation between the two parties was launched in the Beijing Road Store, Huadu Store, Huangpu Store and Xicheng Duhui Store of Guangzhou Modern Department Store. Modern Department Store divided its own stores into home appliance areas, introduced home appliance categories, and entrusted Guangzhou Gome with full responsibility for the purchase, sales, distribution, after-sales and other businesses of home appliance categories in the store.

It is disclosed that Gome and Modern Department Store will also open the membership system in the future. After the exchange of member data is realized, the members of Gome and Modern Department Store will have dual memberships, covering all kinds of exclusive privileges for both parties.

Analysts pointed out that this joint venture model has solved the problems of renting department stores and locating home appliance chains. At the same time, the cooperation between the two can realize the sharing of passenger flow, member resources and even publicity resources, thus reducing their respective operating pressure.

Zhou Qiang said that in the past, department stores operated household appliances on their own, which required a lot of cash flow. Therefore, subtracting at the beginning of store opening can reduce the survival risk of new stores. Now, Moden has introduced household appliances to do addition, which is not self operated, but cooperated with Gome. This fills the gap in home appliance business, enriches the business combination of department stores, and can further enhance consumers' experience of home appliance shopping in Modern Department Store. Modern Department Store has also developed from exclusive fashion department store to "joint operation+leasing+self operation", revitalizing store resources.

Luo Jianji, the Deputy General Manager of Modern Department Store, also said frankly that in the past two years, some suppliers will withdraw due to operating pressure, and some renting pressure will appear in individual markets. So now we also want to expand our thinking to revitalize some shop resources.

It is also revealed that in the future, Modern Department Store will also consider introducing specialized companies such as supermarkets. At Gangding Head Office, China Resources Vanguard Convenience Supermarket has recently entered.